2/10 Why tax cuts are a bad way to stimulate demand in a deflationary
environment:
http://tinyurl.com/ccatun
(Freakonomics Blog at NYT)
\_ Oh sure, you can't trust people with their own money.
http://www.youtube.com/watch?v=zISKoQegbxM
\_ No, you can't, when the collective interest is
diametrically opposed to the individual's interest.
We, collectively, need the economy stimulated.
However, we, individually, don't want to spend our
However, we, individually, want to save our money
money to maximize our personal financial security.
So, right now, you can't trust people with their
own money.
\_ Is this why the fed has racked up debts that work out to
over $30,000 per capita?
\_ How large are the debts that the private sector has
racked up?
\_ People know what they need and don't. We've been living in a
mode where people spend way beyond their capacity. Retreating
from that is normal. Deflation is good. We have tons of
immigrants and an inefficient culture of buying tons of
cheap crap.
"Deficient aggregate demand" isn't a problem. We still have
a huge trade imbalance so there are plenty of jobs we could
theoretically be doing instead of importing all that shit.
But the only way that would happen is if we let conditions
move towards equilibrium instead of borrowing trillions to
prop up the status quo.
\_ You almost make some sense. Good thing you aren't running
the Republican party or I'd have to vote for you.
\_ Do you think that people knew what they needed and what
they didn't need when they decided to leverage up buying
McMansions, flipping houses and buying SUVs? How about when
they bought all those exotic financial instruments which
bet on the housing bubble? Do you know what a deflationary
trap is? What you are advocating would put us in one,
the same as Japan post-bubble, and would give us our
own "lost decade" or two.
\_ People did that because it was what makes sense to do
given abundant cheap credit. The government's policies
steered the market towards cheap imports and housing
instead of real industry -- not only our direct
policies but how we allowed e.g. China to manipulate our
own economy. See:
http://blogs.cfr.org/setser/2009/02/02/it-wasnt-just-the-market/#more-4618
Of course long-term deflation is not good. But if it
wants to happen there's no point going around trying to
ignore the laws of gravity. We should look for ways to
cushion the fall and set things up for long term success.
The previous economy (dot com then crazy mortgage bubble)
was based on a tremendous amount of imaginary wealth.
To keep on pretending just prolongs and exacerbates.
The ideas you're talking about is the thinking that lead
us to where we are.
\_ No, it was a deliberate decision by the GOP to
deregulate the financial sector which led to the blow-
up in available credit, more than anything. There were
certainly other contributing factors, but that was
number one. To lower the Debt/GDP ratio, you can try
to lower debt or raise GDP. Your plan would try and
lower debt, but probably lower GDP even more - that
is what has happened in the past when debt bubbles
have been allowed to pop without any attempt to
clean up the mess afterwards. There is a chance that
by reallocating capital to more effective uses, we can
grow GDP and reduce overall debt that way. Most of
the increase in govt debt recently has just been a
shift from private to public hands, so has not
increased the overall debt burden to the US economy.
This is not guaranteed of course, a lot of it depends
on how good a job govt does in allocating capital to
productive uses. It is hard to imagine that they would
do a worse job than the private sector has over the
last decade, but anything is possible.
\- you can blame the GOP for some crazy tax policies
gutting enforcement funding or "capturing"
regulatory agencies and most of deregulation, but
there is a lot of blame to go around on dereg
and mkt fundamentalism. i'd be ok chaining
robert rubin and phil gramm together and sending
them off into interstellar space.
\_ Please see the Commodity Futures Modernization
Act of 2000.
\_ Even given the deregulated system,
there were clear lapses on the part of the
regulatory systems that did still exist. And
failures on the part of private regulators like
S&P. I believe part of that is simply a lack
of competition -- the need for government
oversight is directly related to market health.
Markets don't know what's productive, they just
tend to maximize utility in terms of profit. If
the environment is skewed the result is skewed.
It's like when "kind" people put out food for
animals; the animals will base their "economy" on
maximizing this free benefit. They don't
understand why there is free food, so they can't
understand that it might go away, or that the
humans might round them up and gas them.
Low interest rates, perpetual borrowing, and
China's market manipulations are our free food.
Even now China keeps investing in overcapacity and
trade surplus.
The deregulated financial industry made mistakes,
but basically it was drunk on the free shit.
Cheap credit was influenced by the trade deficit.
The Fed also maintained relatively very low
interest rates even while the housing bubble was
growing insanely fast. Greenspan denied that there
was a bubble. The government was basically telling
people that housing was the place to be.
\_ Look, you ideological nitwit; the housing bubble
is *not* the cause of our financial crisis.
\_ I rather think it is. If housing recovers
then all of these problems instantly go
away. Loose credit and low interest rates
combined with fraudulent mortgage lending
practices and dishonest borrowers are at
the heart of the problem. If you want to
know where most of the $$$ went, it went to
anyone who sold a property in the last 5
years that they had owned more than 5
years prior. Some of it when to speculators
and some of it went to people like you
and me whose house value doubled in a few
years. When salaries and real estate prices
match more closely then this will all blow
over but not until then. Leverage just
made things worse by wiping out capital,
but those speculators had a good run prior to
that so some should weather this. Some won't.
C'est la vie.
\_ We have had credit bubbles that did not
involve housing and we have had housing
cycles (bubbles?) that did not bring down
the financial sector. Unregulated and
overly risky speculation is what brought
down the financial sector, mostly the IBs
and hedge funds leveraging 30:1 on their
bets.
the financial sector.
\_ S&L crisis?
This isn't the first time Citi has
borrowed from the gov't either.
Was 1991 the last time?
This crisis is more severe because
the bubble was bigger, partly
because interest rates were lower
and other instruments were
underperforming or viewed as
risky. That's all. CA has had housing
bubbles that popped, but this is new
to most of the country.
Financial institutions leveraging themselves
ridiculously is the cause of our financial
crisis. Oh, if only the government didn't
exist, the invisible hand would have made sure
that the banks acted safely!
Here's a news flash: The financial crisis
*IS* THE FUCKING INVISIBLE HAND. The free
market is perfectly happy to drive off a cliff
and destroy a society. Government's job is
to make sure that doesn't happen. -tom
\_ Leveraging wasn't THE cause; misclassifying
risk was the cause, and is directly
related to the housing bubble. And the
mother of all the leveraging is the fed's
low interest rates.
The financial crisis is not the invisible
hand because government was riding
shotgun the entire way. Or more accurately,
the government was building a bridge to
the promised land out from the cliff, but
actually it went into thin air.
In any case you are arguing a strawman: I
am not arguing that gov't regulation is
unnecessary. I'm saying it didn't do its
job.
\_ Yeah, whatever. How about this: Could
you describe a possible scenario where
the free market, by itself, could cause
a financial crisis? Or is that
impossible? -tom
\_ Obviously yes, with banks: bank runs.
Although modern banks are completely
married to the government via the
central bank, and via the laws that
allow them to create money and lend
money that they simultaneously owe
to their depositors. That's not
really the free market; it's inherently
unstable, and supposedly the govt is
managing this in order to be able to
easily stimulate the economy.
It is theoretically possible to have
banking which is not based on the
current scheme.
http://mises.org/Books/mysteryofbanking.pdf
You can't honestly have a free market
without a hard currency and a situation
where actors are held accountable for
their dealings.
A market run on an arbitrary government
fiat currency is inherently not free.
If banks were required to lend money
out of their own capital instead of
their customers, or else enter specific
contracts with customers to lend their
money, you could not have bank runs.
\_ Go sell it at Top Dog. -tom
\_ The model of modern corporations
is too conducive to disaster.
Responsibility is abdicated onto
a non-person legal entity, and
management transfers between
speculators who individually
do not have full understanding
of the business, but neither
stand very much to lose. The
executives and employees stand
to profit greatly from short
term schemes which are measured
by quarterly results.
Then you have the abomination of
"government sponsored corporations"
like
http://en.wikipedia.org/wiki/Fannie_mae
How can you say that the fin.
crisis is not directly related
to the actions of this agency
and the govt that created and
controlled it?
\_ Fannie Mae was a drop in the
bucket (and late) compared to
the total amount of CDOs
written. You should have
stopped at "bank runs have
happened long before there
was government regulation of
banks." Tell us how Tulip
Mania was big ole' gubmints
fault.
\_ Fraud and speculation are
not limited to the govt,
no, but the govt allows
for a special depth of
scope. Nothing's wrong
with a periodic recession.
But the govt banking scheme
creates vast money supply
variances which is what
creates a crisis.
\_ Prove it.
"Whether the U.S. had a central bank or not, the banks were _/
assured that if they inflated together and then got in trouble,
government would bail them out and permit them to suspend
specie payments for years. Such general suspensions of specie
payments occurred in 1819, 1837, 1839, and 1857..."
US banks are on the government's credit teat, and mommy government
always saves them, or at least the vast majority of them. And it
lets them multiply credit exponentially.
There's no real benefit to all that credit. It just inflates prices
and gives the fed. government a backdoor tax method.
Here, listen to FDR trying to explain away banking fraud.
http://www.fdic.gov/about/history/FDR_Fireside_Chat_Banking_Situation_03-12-33.mp3
Money as debt.
http://video.google.com/videoplay?docid=-9050474362583451279
Mystery of Banking
http://mises.org/Books/mysteryofbanking.pdf
\_ that's not proof of anything; it's pure assertion. And it very
specifically does not address the question, which is whether
a crisis can be created without government intervention. (Hint:
it is completely obvious that a crisis can be created without
government intervention.) -tom
\_ I don't need to prove anything, I'm not your slave and your
question isn't "the" question. Hint: all the major crises
in US history were entangled with the government. Your Tulip
example was not a crisis and is anyway half legend.
You're going around calling people idiots making assertions
but demanding that others "prove" things (hint: no economic
theories have ever been "proven"). But you have the status
quo mainstream theories which you accept as gospel even though
repeatedly they have failed to prevent massive crises. I
don't claim that you can't have economic problems, that's not
a relevant question; an alternative system does not have to
involve 100% protection from recession for example; in fact
it's likely that recessions are necessary for healthy economy.
Only if some fail is competition meaningful.
\_ I didn't mention tulips. "All the major crises in US
history were entangled with the government" is tautalogical;
the US has a government that ideological morons like you
blame for everything. There is no scenario under which
you would claim the government was not involved, therefore,
the government is always involved, therefore, the goverment
is bad. QED. Or not. -tom
\_ How ironic that you blame government response to financial crises
as being responsible for creating these crises. Do you blame the
fire department for fires, too?
\_ If you weren't an idiot, you'd realize that's not what I said. |
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